Question 1

The marginal tax rate is defined as

Accepted Answer

A) tax liability divided by taxable income. 
B) tax liability multiplied by taxable income. 
C) the change in tax liability divided by the change in taxable income. 
D) the change in tax liability minus the change in taxable income. 
A) tax liability divided by taxable income. 
B) tax liability multiplied by taxable income. 
C) the change in tax liability divided by the change in taxable income. 
D) the change in tax liability minus the change in taxable income.

Question 2

Taxes adversely affect the allocation of resources because

Accepted Answer

A) they do not always fall more heavily on the rich than on the poor. 
B) the taxes collected are not enough to finance government spending. 
C) not everyone pays taxes. 
D) they distort prices and thus distort the decisions of households and firms. 
A) they do not always fall more heavily on the rich than on the poor. 
B) the taxes collected are not enough to finance government spending. 
C) not everyone pays taxes. 
D) they distort prices and thus distort the decisions of households and firms.

Question 3

Use the figure below to answer the following question(s).
Figure 4-12  
-Refer to Figure 4-12. The exhibit illustrates the impact of granting a subsidy on a particular good. Which of the following is true for this subsidy given the information provided in the exhibit?

Accepted Answer

A) The subsidy has been statutorily (legally) paid to buyers. 
B) The subsidy results in an increase in the selling price of the good. 
C) Sellers will receive a larger proportion of the benefit from this subsidy than buyers. 
D) All of the above are true. 
A) The subsidy has been statutorily (legally) paid to buyers. 
B) The subsidy results in an increase in the selling price of the good. 
C) Sellers will receive a larger proportion of the benefit from this subsidy than buyers. 
D) All of the above are true.

Question 4

When a shortage of a good is present due to a price ceiling,

Accepted Answer

A) the amount supplied will be greater than the amount demanded. 
B) the quality of the good will generally improve. 
C) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good. 
D) the demand for the product will increase and, thereby, eliminate the shortage. 
A) the amount supplied will be greater than the amount demanded. 
B) the quality of the good will generally improve. 
C) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good. 
D) the demand for the product will increase and, thereby, eliminate the shortage.

Question 5

If a $2 tax per bottle of wine is imposed on wine producers, which of the following will occur?

Accepted Answer

A) The price of wine will increase, fewer bottles will be purchased, and there will be a deadweight loss from this tax. 
B) The price of wine will increase, more bottles will be purchased, and consumers will gain as the result of this tax. 
C) The price of wine will decrease, more bottles will be purchased, and there will be a deadweight loss from this tax. 
D) The price of wine and quantity sold will be unchanged. 
A) The price of wine will increase, fewer bottles will be purchased, and there will be a deadweight loss from this tax. 
B) The price of wine will increase, more bottles will be purchased, and consumers will gain as the result of this tax. 
C) The price of wine will decrease, more bottles will be purchased, and there will be a deadweight loss from this tax. 
D) The price of wine and quantity sold will be unchanged.

Question 6

An effective minimum wage

Accepted Answer

A) imposes a price ceiling on the wages of various categories of low-skill workers. 
B) increases the demand for low-skill workers. 
C) makes it easier for low skill workers to find jobs. 
D) increases the earnings of some low-skill workers while reducing the employment and training opportunities available to others. 
A) imposes a price ceiling on the wages of various categories of low-skill workers. 
B) increases the demand for low-skill workers. 
C) makes it easier for low skill workers to find jobs. 
D) increases the earnings of some low-skill workers while reducing the employment and training opportunities available to others.

Question 7

The Laffer curve indicates that

Accepted Answer

A) when tax rates are low, a decrease in tax rates is likely to increase tax revenues. 
B) when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues. 
C) tax revenue will always increase when tax rates are increased. 
D) tax revenue will always decrease when tax rates are lowered. 
A) when tax rates are low, a decrease in tax rates is likely to increase tax revenues. 
B) when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues. 
C) tax revenue will always increase when tax rates are increased. 
D) tax revenue will always decrease when tax rates are lowered.

Question 8

A regressive tax

Accepted Answer

A) taxes individuals with higher incomes at a higher rate than individuals with lower incomes. 
B) takes a similar percentage of income at all income levels. 
C) takes a higher percentage of the income of those with lower incomes than for those with higher incomes. 
D) taxes savings at a higher rate than consumption. 
A) taxes individuals with higher incomes at a higher rate than individuals with lower incomes. 
B) takes a similar percentage of income at all income levels. 
C) takes a higher percentage of the income of those with lower incomes than for those with higher incomes. 
D) taxes savings at a higher rate than consumption.

Question 9

Figure 4-24  
-Refer to Figure 4-24. The amount of the tax on each unit of the good is

Accepted Answer

A) P3 - P1. 
B) P3 -P2. 
C) P2- P1. 
D) Q2 - Q1. 
A) P3 - P1. 
B) P3 -P2. 
C) P2- P1. 
D) Q2 - Q1.

Question 10

The more elastic the supply of a product, the more likely that the actual benefit of a subsidy granted of the product will

Accepted Answer

A) go to sellers. 
B) go to buyers. 
C) go equally to both buyers and sellers. 
D) do none of the above. 
A) go to sellers. 
B) go to buyers. 
C) go equally to both buyers and sellers. 
D) do none of the above.

Question 11

Use the figure below to answer the following question(s).
Figure 4-12  
-Refer to Figure 4-12. The supply curve S and the demand curve D1 indicate initial conditions in the market for college textbooks. A new government program is implemented that grants students a $30 per textbook subsidy on every textbook they purchase, shifting the demand curve from D1 to D2. Which of the following is true for this subsidy given the information provided in the exhibit?

Accepted Answer

A) The original average selling price of textbooks was $100, and after the subsidy it rises to $120. 
B) $90 represents the net price a buyer must pay for a textbook after taking into account the subsidy payment. 
C) Textbook buyers will receive an actual benefit of $10 from the subsidy, while textbook sellers will receive an actual benefit of $20 from the subsidy. 
D) All of the above are true. 
A) The original average selling price of textbooks was $100, and after the subsidy it rises to $120. 
B) $90 represents the net price a buyer must pay for a textbook after taking into account the subsidy payment. 
C) Textbook buyers will receive an actual benefit of $10 from the subsidy, while textbook sellers will receive an actual benefit of $20 from the subsidy. 
D) All of the above are true.

Question 12

If a $500 tax is placed legally (statutorily) on the sellers of new violins and as a result the price of violins to consumers rises by $400, then the actual burden of the tax

Accepted Answer

A) falls completely on violin buyers. 
B) falls completely on violin sellers. 
C) is $400 on violin buyers and $100 on sellers. 
D) is $100 on violin buyers and $400 on sellers. 
A) falls completely on violin buyers. 
B) falls completely on violin sellers. 
C) is $400 on violin buyers and $100 on sellers. 
D) is $100 on violin buyers and $400 on sellers.

Question 13

Use the figure below to answer the following question(s).
Figure 4-13  
-Refer to Figure 4-13. The supply curve S and the demand curve D1 indicate initial conditions in the market for flu shots. A new government program is implemented that grants buyers a $25 subsidy when they buy a flu shot, shifting the demand curve from D1 to D2. Which of the following is true for this subsidy given the information provided in the exhibit?

Accepted Answer

A) Buyers of flu shots will receive an actual benefit of $10 from the subsidy, while sellers of flu shots will receive an actual benefit of $15 from the subsidy. 
B) Buyers of flu shots will receive an actual benefit of $15 from the subsidy, while sellers of flu shots will receive an actual benefit of $10 from the subsidy. 
C) Buyers of flu shots will receive the full $25 benefit from the subsidy. 
D) Sellers of flu shots will receive the full $25 benefit from the subsidy. 
A) Buyers of flu shots will receive an actual benefit of $10 from the subsidy, while sellers of flu shots will receive an actual benefit of $15 from the subsidy. 
B) Buyers of flu shots will receive an actual benefit of $15 from the subsidy, while sellers of flu shots will receive an actual benefit of $10 from the subsidy. 
C) Buyers of flu shots will receive the full $25 benefit from the subsidy. 
D) Sellers of flu shots will receive the full $25 benefit from the subsidy.

Question 14

A deadweight loss results from the imposition of a tax on a good because the tax

Accepted Answer

A) induces the government to increase its expenditures. 
B) reduces the quantity of exchanges between buyers and sellers. 
C) causes a disequilibrium in the market. 
D) imposes a loss on buyers that is greater than the loss to sellers. 
A) induces the government to increase its expenditures. 
B) reduces the quantity of exchanges between buyers and sellers. 
C) causes a disequilibrium in the market. 
D) imposes a loss on buyers that is greater than the loss to sellers.

Question 15

The statutory incidence (or burden) of a tax refers to

Accepted Answer

A) the governmental agency responsible for collecting the tax. 
B) who actually bears the burden of a tax once changes in market prices are taken into account. 
C) the degree of progressiveness in the rate structure of the tax. 
D) who the tax is legally or statutorily imposed on. 
A) the governmental agency responsible for collecting the tax. 
B) who actually bears the burden of a tax once changes in market prices are taken into account. 
C) the degree of progressiveness in the rate structure of the tax. 
D) who the tax is legally or statutorily imposed on.

Question 16

A minimum wage that is set above a market's equilibrium wage will result in

Accepted Answer

A) an excess demand for labor, that is, unemployment. 
B) an excess demand for labor, that is, a shortage of workers. 
C) an excess supply of labor, that is, unemployment. 
D) an excess supply of labor, that is, a shortage of workers. 
A) an excess demand for labor, that is, unemployment. 
B) an excess demand for labor, that is, a shortage of workers. 
C) an excess supply of labor, that is, unemployment. 
D) an excess supply of labor, that is, a shortage of workers.

Question 17

If the supply of health care services is highly inelastic, programs that subsidize the cost of purchasing medical services will

Accepted Answer

A) lead to higher prices for medical services. 
B) lead to lower prices for medical services. 
C) not affect the price of medical services. 
D) help the buyers of medical services more than the sellers of those services. 
A) lead to higher prices for medical services. 
B) lead to lower prices for medical services. 
C) not affect the price of medical services. 
D) help the buyers of medical services more than the sellers of those services.

Question 18

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

Accepted Answer

A) There will be a shortage of wheat. 
B) There will be a surplus of wheat. 
C) There will be an increase in the quantity of wheat demanded as the result of the price floor. 
D) There will be a decrease in the quantity of wheat supplied as the result of the price floor. 
A) There will be a shortage of wheat. 
B) There will be a surplus of wheat. 
C) There will be an increase in the quantity of wheat demanded as the result of the price floor. 
D) There will be a decrease in the quantity of wheat supplied as the result of the price floor.

Question 19

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good,

Accepted Answer

A) buyers and sellers will each share 50 percent of the burden, regardless of the elasticities of the demand and supply curves. 
B) sellers will bear a larger share of the tax burden. 
C) the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. 
D) buyers will bear a larger share of the tax burden. 
A) buyers and sellers will each share 50 percent of the burden, regardless of the elasticities of the demand and supply curves. 
B) sellers will bear a larger share of the tax burden. 
C) the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. 
D) buyers will bear a larger share of the tax burden.

Question 20

Both price floors and price ceilings lead to

Accepted Answer

A) shortages. 
B) surpluses. 
C) reductions in quality. 
D) a reduction in the quantity traded. 
A) shortages. 
B) surpluses. 
C) reductions in quality. 
D) a reduction in the quantity traded.

The marginal tax rate is defined as

Taxes adversely affect the allocation of resources because

Use the figure below to answer the following question(s). Figure 4-12 -Refer to Figure 4-12. The exhibit illustrates the impact of granting a subsidy on a particular good. Which of the following is true for this subsidy given the information provided in the exhibit?

When a shortage of a good is present due to a price ceiling,

If a $2 tax per bottle of wine is imposed on wine producers, which of the following will occur?

An effective minimum wage

The Laffer curve indicates that

A regressive tax

Figure 4-24 -Refer to Figure 4-24. The amount of the tax on each unit of the good is

The more elastic the supply of a product, the more likely that the actual benefit of a subsidy granted of the product will

If a $500 tax is placed legally (statutorily) on the sellers of new violins and as a result the price of violins to consumers rises by $400, then the actual burden of the tax

A deadweight loss results from the imposition of a tax on a good because the tax

The statutory incidence (or burden) of a tax refers to

A minimum wage that is set above a market's equilibrium wage will result in

If the supply of health care services is highly inelastic, programs that subsidize the cost of purchasing medical services will

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good,

Both price floors and price ceilings lead to

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 4: Supply and Demand: Applications and Extensions

The marginal tax rate is defined as

Taxes adversely affect the allocation of resources because

Use the figure below to answer the following question(s). Figure 4-12 -Refer to Figure 4-12. The exhibit illustrates the impact of granting a subsidy on a particular good. Which of the following is true for this subsidy given the information provided in the exhibit?

When a shortage of a good is present due to a price ceiling,

If a $2 tax per bottle of wine is imposed on wine producers, which of the following will occur?

An effective minimum wage

The Laffer curve indicates that

A regressive tax

Figure 4-24 -Refer to Figure 4-24. The amount of the tax on each unit of the good is

The more elastic the supply of a product, the more likely that the actual benefit of a subsidy granted of the product will

If a $500 tax is placed legally (statutorily) on the sellers of new violins and as a result the price of violins to consumers rises by $400, then the actual burden of the tax

A deadweight loss results from the imposition of a tax on a good because the tax

The statutory incidence (or burden) of a tax refers to

A minimum wage that is set above a market's equilibrium wage will result in

If the supply of health care services is highly inelastic, programs that subsidize the cost of purchasing medical services will

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good,

Both price floors and price ceilings lead to

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters